RBS Pays Negative Interest on Large Deposits Starting Monday; Negative Interest Roundup

In response to the Bank of England setting interest rates at a record low 0.25% at its last meeting, the Royal Bank of Scotland sent out letters informing some large depositors that negative interest start on Monday.

Postbank, a subsidiary of Deutsche Bank, will charge depositors €3.9 per month starting November, in response to the ECB’s negative interest rate policy.

This is more money out the window for depositors. At the end of this article I have a roundup of banks offering negative interest rates on deposits.

RBS and Postbank Begin to Charge Customers for Deposits

El Economista reports RBS and Postbank Begin to Charge Customers for Deposits.

Royal Bank of Scotland (RBS), an entity in which the British Government controls a 72.6% stake, will begin charging its institutional customers for their deposits in the bank in order to cope with the last rate reduction interest held by the Bank of England (BoE) on August 4. In addition, two other German companies will do the same to cushion the negative rates implemented by the ECB.

According to the newspaper Financial Times, RBS has sent a letter to certain corporate customers of its investment banking division in which indicates that negative interest rates will apply from next Monday.

The negative interest rates affect customers operating in futures and options and therefore maintain deposits as collateral, said the British head a knowledgeable banker plans of the entity.

In the letter, RBS argues that so far have remained at 0% deposit rate, but the time has come where they can not “hold” this level, so begin applying negative interest rates.

Not the Only One

Also, the German bank Postbank, a subsidiary of Deutsche Bank, will charge €3.9 per month to customers to keep their current accounts in order to offset the negative interest rates of the European Central Bank (ECB), reports Reuters.

Ulster Bank, the Irish lender which is part of RBS, also imposes negative rates on large corporations, but does not apply such charges to small businesses or individual customers.

A few days ago German credit cooperative Raiffeisen announced it would begin applying negative rates on customer deposits in September. The policy applies to deposits in excess of 100,000 euros.

The cooperative imposes a negative rate of -0.4%, the same rate the European Central Bank charges for ‘excess’ reserves held at the ECB.

Postbank Scraps Free Accounts for Millions of Customers

Reuters reports Postbank Scraps Free Accounts for Millions of Customers.

Germany’s Postbank, a unit of Deutsche Bank, is to scrap free current accounts for millions of customers in an effort to offset the burden of the European Central Bank’s negative interest rates.

“The market environment, especially low interest rates, make it ever harder to earn money from current accounts,” Postbank board member Susanne Kloess said in a statement.

From Nov. 1 customers will be charged 3.90 euros ($4.41) a month unless they have monthly inflows of 3,000 euros or more, in which case they will still have cost-free access to a premium giro account, Postbank said.

A Postbank spokesman declined to specify how many customers would be required to pay for their accounts, but said it would be the “vast majority” of Postbank’s 5.3 million giro account holders.

More RBS Details

The Financial Times has more details in its report RBS to Start Charging Large UK Clients to Hold Cash.

Royal Bank of Scotland is to charge some large corporate customers for holding their cash, the first sign the Bank of England’s decision to cut rates to historic lows is forcing lenders to collect negative interest from deposit holders.

The state-backed bank has written to certain financial institutions in its investment banking division to warn them it will apply negative interest rates from Monday, according to a letter seen by the Financial Times.

“As you will be aware, there are a number of currencies which now attract negative overnight rates for deposits,” the letter from the bank said.

“To date we have been flooring deposit rates at zero per cent but we have now reached the stage where we can no longer sustain this level of floor. As a result of the continuing interest rate situation we will be implementing negative interest rates.”

The changes affect large customers who must hold collateral in both sterling and euros. Banks are hit by negative rates when they pass through the European clearing houses.

Although interest rates in the UK are not negative, RBS is now opting to pass on the cost of the clearing houses’ charges to about 70 institutions following the BoE rate cut, according to a banker briefed on the plans.

It emerged last month that RBS had written to more than 1m business customers warning them it could charge for deposits if rates fell below zero.

Ulster Bank, the Irish lender that is part of RBS, already imposes negative rates on some large corporates.

Ulster has products priced off Euribor, a European interbank lending rate, which turned negative last year. Ulster’s charges do not apply to small businesses or personal customers.

The Bank of Ireland said on Friday that it would start charging large companies to hold their money on deposit later this year, making it the first domestic Irish lender to impose negative interest rates.

The bank, which is 14 per cent owned by the Irish government, has warned large corporations and institutions that it will charge 0.1 per cent for deposits above €10m from October.

HSBC said last year it would start charging other banks for deposits held in currencies where negative interest rates apply. It confirmed on Friday that the policy would not change. Barclays also said it had no plans to apply negative rates.

Landscape Below Zero

The above image from Negative Rates: How One Swiss Bank Learned to Live in a Subzero World written April 14.

The article notes “Alternative Bank Schweiz AG (ABS) informed its clients that they would have to pay a charge of at least 0.125% to maintain their accounts at the bank starting in 2016.”

The $8 trillion cited is out of date. As of July 6, Bloomberg noted Global Negative-Yielding Bond Pile Nears $10 Trillion.

Negative Deposit Roundup

• UK – Royal Bank of Scotland: Negative interest rates on some large depositors start August 21. One million business customers notified. Rate not specified
• Germany – Postbank: Postbank, a subsidiary of Deutsche Bank, will charge millions of depositors €3.9 per month starting November. “Vast majority” of Postbank’s 5.3 million giro account holders impacted.
• Germany – Raiffeisen: German credit cooperative Raiffeisen announced it would begin applying negative rates on customer deposits in September. The policy applies to deposits in excess of 100,000 euros. The cooperative imposes a negative rate of -0.4%, the same rate the European Central Bank charges for ‘excess’ reserves held at the ECB.
• Ireland – Ulster Bank: The Irish lender Ulster Bank, part of RBS, imposes negative rates on large corporations, but does not apply such charges to small businesses or individual customers.
• Ireland – Bank of Ireland: The bank will charge large companies to hold their money on deposit, making it the first domestic Irish lender to impose negative interest rates. The bank, which is 14 per cent owned by the Irish government, has warned large corporations and institutions that it will charge 0.1 per cent for deposits above €10m starting October.
• UK – HSBC. The multinational bank HSBC said last year it would start charging other banks for deposits held in currencies where negative interest rates apply.
• Switzerland – Alternative Bank Schweiz AG: ABS informed its clients last year that they would have to pay a charge of at least 0.125% to maintain their accounts at the bank starting in 2016.

Postbank Comments

I would not be surprised in the least to see Postbank lose millions of accounts. For the most part, it is the only bank nailing small depositors.

Unlike the other banks going after big accounts, “Postbank customers will be charged 3.90 euros ($4.41) a month unless they have monthly inflows of 3,000 euros or more, in which case they will still have cost-free access to a premium  account” a Postbank spokesman said.

Those depositors are highly likely to go elsewhere.

Financial Repression Continues

People are beginning to see the effects of central banks’ financial repression, even if they have not yet placed the blame squarely where it belongs.

The rise of extreme parties on the Left and Right and the Brexit vote are both direct consequences of failed central banks and government policies that benefit the wealthy at the expense of everyone else.

The rise in anger and the rise in the price of gold are also a direct result of an increased belief that central banks do not have everything under control.

James Traub, a contributing editor at Foreign Policy, says people are “mindlessly angry”. Actually, Traub is mindless.

For further discussion, please see How the Global Elites Screws Peons (While Media Fools Cheer).

Mike “Mish” Shedlock